Charter review looks at issues of utility oversight

The operations of the City of Tacoma and the services it provides doesn’t get more personal for its residents than who controls the power that flows through their light switches or provides the water used to flush their toilets.

People largely don’t care about such services, until they don’t work or come at a higher price. Few things breed discontent more than a toilet that can’t flush.

In the City of Destiny, these finer things of life are provided largely by Tacoma Public Utilities, a publicly owned company formed in 1893 that is the city’s largest department. It has 1,350 employees and a budget of more than $1 billion a year, but works partially independently of City Council decisions.

It has an all-volunteer Public Utility Board of five Tacoma residents that serve as its board of directors. The board makes policy and project decisions for TPU’s power, water, rail and Internet services, while the City Council appoints the board, approves its budget and approves rate changes.

Some Tacomans think the City Council should have direct oversight of a utility of that size rather than have decisions left in the hands of bureaucrats and volunteer board members. Others fear politicizing power and water rates would bring trouble. The Charter Review Committee is pondering the issue as part of its roster of recommendations to the city’s governance.

Supporters of shifting utilities under direct council oversight include review committee chair and former mayor Bill Baarsma and former council member and former Pierce County Executive John Ladenburg.

A big issue in their argument is the debacle surrounding the utility board’s decisions in the 1970s to invest in Washington Public Power Supply System’s nuclear power plants in Hanford and Grays Harbor County.

Utilities around the nation were investing in nuclear power plants with projections of higher electricity use in the years to come. TPU and other Puget Sound cities bought into WPPSS, or what would later be known as “whoops.” It proved to be a bad deal. Cost overruns and mismanagement led to the default of $2.25 billion in municipal bonds and years of lawsuits.

Tacoma ratepayers were on the hook for $40.3 million in debt that they paid off through a 15 percent electricity surcharge that lasted for years without a single watt of power ever being generated.

The City Council at the time approved the investment but eventually pulled the plug after budgets were revised and revised again as costs skyrocketed, said Ladenburg, who was on the council at the time.

He noted that the council eventually killed the deal after receiving financial documents from other utilities and members of the media that TPU failed to provide.

“They were hiding the ball from us about what was going on and about the cost over runs,” he said. “We got more information from the Snohomish Public Utility District than we did from our own utility. They just shut the door in our face.”

The relationship between the City Council and TPU got so bad, Ladenburg said, that the city created a government liaison position to spy on its own utility. The council hired Jake Fey, who would later become a City Council member and is now a state senator.

“He was basically our spy to get information about our own utility board,” Ladenburg said. “And that’s what he did.”

TPU’s board was pushing higher energy use to justify the increase in projected energy production, while the city council was looking for ways to promote conservation.

“We didn’t want demand to go up. We wanted to find ways for it to use less, not more,” he said.

The city’s Good Cents Homes program won out and even became an effort the state adopted as its standards, he said.

Dissolving the utilities board and having TPU’s director answer to the City Council and city manager like other municipal departments would have avoided those conflicts.

Supporters of the current system fear such a move would make long-term utility decisions at the changing winds of politics that could hurt ratepayers.

TPU has a strong bond rating, for example, and shifting its governance could lead to a drop in that credit score, which would translate to higher interest rates for its bonds. Tacoma’s power utility is seen by those in the industry as being well run and provides electrical rates that are the envy of other cities.

One argument to keep the utility board is to safeguard its reserves against becoming a savings account to fund General Fund programs. While a direct “raid” of TPU accounts would be illegal under state law, creative accounting by politically minded accountants could find a way, supporters of the status quo fear.

TPU pays the city hall some $17 million a year for “administrative services” such as information technology, human resources and legal advice. TPU and city officials negotiated an amount after the State Auditor determined the city was overcharging the utility to raise money for general city services.

Last year, the City Council also proposed a utility tax that would fund street improvements, while suggesting TPU didn’t have to increase its rates and could absorb the cost of the added taxes through efficiencies and reserve funds. The plan failed at the ballot box.

Gaines says that while some of the budget transfer makes sense to pay for administrative duties city hall officials do on behalf of the utility, he questions the amount.

At its simplest form, TPU is a utility that is owned by the residents of Tacoma, although about half of its customers reside outside the city limits. Much of its operational decisions are made by an appointed volunteer committee, a system what was established in 1953. That’s typical for public utilities, but the issue is split.

Mayor Marilyn Strickland and Councilmember Ryan Mello, who chairs the city’s Infrastructure, Planning, and Sustainability Committee, contend that a change, or at least a review, is needed as a matter of transparency and accountability for a large organization that affects every resident.

Tacoma residents own the utility, while residents outside the city but who are connected to TPU services are customers, much as they would be customers of a private utility. So the question should be raised. Should something so essential to life like power and water be managed by non-elected volunteers or elected officials?

“It really is that simple,” Mello said.

City Councils oversee operations of about 37 percent of large public utilities around the country, while 24 percent have their own elected boards and 39 percent have appointed boards.

The Charter Review Committee meets at 7 p.m. every Monday and Wednesday in Room 16 of the Tacoma Municipal Building North, located at 733 Market St. and is set to submit its final recommendations to the city council on May 6.